Platform Monopolies

There’s an article in the NY Times Sunday Business Section today that lays out a very important question we have all been dancing around but will increasingly be dealing with. The article is nominally about Amazon’s fight with Hachette but it is really about internet platforms and monopolies.

The author of the NY Times piece tells the story of Vincent Zandri, an author of mystery and suspense novels, who has moved all of his publishing activities over to Amazon’s platform and is enjoying the benefits of doing that.

This could easily have been the story of the journalist who moves her writing from The Wall Street Journal to her own blog, or the story of the filmmaker who moves from the Hollywood studio system to Kickstarter and VHX. It could be the story of the band that leaves their record label and does direct deals with SoundCloud and Spotify. It could be the story of the yellow cab driver who moves his driving business to Uber or Sidecar.

The story of Vincent Zandri is the story of our times.

The Internet, at its core, is a marketplace that, over time, removes the need for the middleman. That is very good news for the talent that has been giving up a fairly large part of its value to all of the toll takers in between them and their end customers.

Take Etsy for example. Before Etsy, if you made knit hats, you would sell them to a boutique for $10, and that boutique would turn around and sell them to your customers for $25. Now you sell them to your customers on Etsy for $25 and pay a 20cents listing fee and 3.5% of the transaction and a payment processing fee. In the old model the knitter made $10 per hat. In the new model, the knitter makes about $23 per hat. That’s a big deal. And you see it all over the place in the Internet marketplace economy.

But there is another aspect to the Internet that is not so comforting. And that is that the Internet is a network and the dominant platforms enjoy network effects that, over time, lead to dominant monopolies.

We see that with Google today. Google’s global search market share is around 70%. It would be larger if not for China and Russia, where the governments have given benefits to local players. But even with its current market share, Google is pretty close to a monopoly in search. It is a benign monopoly for the most part and, as such, has largely stayed out of the sights of regulators. I, for one, am happy with that game of chicken between Google and the regulators.

Amazon is increasingly looking like a monopoly in publishing. This part of the NY Times piece is how all of these Internet stories have played out:

At first, those in the publishing business considered Amazon a cute toy (you could see a book’s exact sales ranking!) and a useful counterweight to Barnes & Noble and Borders, chains willing to throw their weight around. Now Borders is dead, Barnes & Noble is weak and Amazon owns the publishing platform of the digital era.

The same could be said of Google, Twitter, YouTube, SoundCloud, Uber, and all of the dominant networks that are emerging around us. From laughable toys to dominant monopolies in less than a decade.

It’s strange for me to write this post because this is our playbook at USV. We invest in networks that can emerge as dominant platforms by virtue of network effects. We like things that are laughed at. The more they are derided, the more we want to invest.

But here’s the rub. When a platform like Amazon emerges as the dominant monopoly in publishing, who will keep them honest? When every author has left the publishing house system and has gone direct with Amazon, what does that world look like?

That is the question the NY Times is asking in their story this morning. And that is an issue that we at USV have been confronting for a while now and we are investing against it.

We have invested in Wattpad, which is a bottoms up competitor to Amazon, as opposed to Hachette which is a top down competitor to Amazon. We think its easier for a more open, less commercial platform like Wattpad to keep Amazon honest than it is for a legacy publishing house.

We have invested in Sidecar, which has built a true open marketplace for ridesharing. We think its more likely that true peer marketplace will keep Uber honest than the legacy fleets of limos and taxis that are fighting for their life against Uber right now.

But maybe most importantly, we are investing in bitcoin and the blockchain, which is the foundation for truly distributed peer to peer marketplaces without the Internet middleman.

For this is the truth that we are now facing. For all of its democratizing power, the Internet, in its current form, has simply replaced the old boss with a new boss. And these new bosses have market power that, in time, will be vastly larger than that of the old boss.

So, as an investor, when you see a dominant market power emerge, you should start asking yourself “what will undo that market power?” And you should start investing in that. We’ve begun doing that, but are not anywhere near done with this effort.

Comments (Archived):

pointsnfigures
Jul 13, 2014

As an investor that invested in dominant market powers, would you invest in a startup that could undo that market power? Sort of like a big corporate company investing in technology that will undo it’s market share (for example if Sears would have “done” Amazon)

fredwilson
Jul 13, 2014

we must

pointsnfigures
Jul 13, 2014

I think of Andreessen saying if they make an investment it takes them out of the market for ten years. Would certainly make for some interesting conflict questions. For example if you invested in an upstart to Etsy. By the way, I totally agree with your observation that the middleman is going to be eliminated. That’s the problem with Wall St/LaSalle St-they went electronic and protected most of the middlemen. (and one reason why I love the block chain)

fredwilson
Jul 13, 2014

we would not invest in a direct competitor to Etsy but if someone used the Coinbase API to build a p2p competitor to Etsy, then we’ve sort of done that

awaldstein
Jul 13, 2014

I’m a fan of CircleUp in intent but I bet that over time this idea of Consumer Goods will bump into all sorts of ideas that are sort of competitive but interesting in their own right.

LE
Jul 13, 2014

(for example if Sears would have “done” Amazon)I don’t know if that is the best example (but I get your point). Because you can’t have Amazon without the ability to loose a shitload of money until the idea became profitable. A long long time. Simply not something that a public company like Sears could afford to do. Or a private company. Or any company without funny money. Amazon’s success is tied to many things which were by no means certain back in the 90’s.Closest thing I can think of that ever happened was with Boeing betting the ranch on the 747 which wasn’t even the original idea (SST was the future). 747 was destined to be a freight plane SST was going to make it obsolete. But SST never happened and didn’t “work”. Many issues. Or at least if what I have read is true. (Who knows?)Lastly, as I have pointed out before all of this “could have should of” is monday morning quarterbacking. Nobody has a record of all the things that large corporations never did (that they could have) that never worked out in the end. You know all the Woz’s that proposed ideas at HP (that they passed on) that never came to be. It wasn’t like Woz was the only one with dreams. Plenty of ideas fail and the “boss” is right in the end. Can’t just look back and say “look how stupid they were” for not thinking the futurer was with GUI (Xerox).Here’s an example of Bill Gates “favorite business book” that was just featured in a WSJ story (in the print edition):http://online.wsj.com/artic…The classic story, that everyone wants to m-bate over is this one:But because Xerox executives didn’t think these ideas fit their core business, they chose not to turn them into marketable products. Others stepped in and went to market with products based on the research that Xerox had done. Both Apple andMicrosoft, MSFT +0.97% for example, drew on Xerox’s work on graphical user interfaces.Ok so the ideas didn’t fit into their core business so they didn’t do the ideas (and we don’t know how many non core ideas never worked just this cherry picked one that worked). And further “In search of excellence” core ideas was “successful companies stick to the knitting”. Bottom line is you can prove any point as correct or false after the fact very easily.Another:He shows how it was built on original, outside-the-box thinking, which makes it all the more surprising that as Xerox matured, it would miss out on unconventional ideas developed by its own researchers.Sure because as companies mature people get older, fat and lazy (take time for their kids instead as being more important) and some young person (with no kids and no family obligations or who hasn’t been burned) with energy and optimism that is not jaded comes along and takes a chance. And if you put enough of those people together something is for sure going to happen.

awaldstein
Jul 13, 2014

Do you really look at Wattpad as a hedge against Amazon’s power or as social platform that aggregates what the economics of Amazon really is not core to?Yes, subtle but I think different.

fredwilson
Jul 13, 2014

its both. you get to the first by being the second. we are seeing that play out with SoundCloud now too.

awaldstein
Jul 13, 2014

By that logic, which makes sense, are a lot of your exits in this approach acquisitions? Would make sense.

William Mougayar
Jul 13, 2014

The top authors on Wattpad are getting big contracts with traditional publishers, with big bucks,- something they wouldn’t have been able to get otherwise.

awaldstein
Jul 13, 2014

Surprised that that is cycle and that alternative proof of market traction simply feeds back into the standard publishing model.Makes sense but disappointed to hear that this is how the circle closes.

William Mougayar
Jul 13, 2014

The traditional publishing model still works for the top .1% of authors….unless the e-publishers start giving advances of $1/2 Million+ to these authors.

awaldstein
Jul 13, 2014

So how do the other 99.9% of Wattpad authors with a real but smaller audience monetize?

fredwilson
Jul 13, 2014

Stay tuned. We are working on that and lots of good ideas on it

awaldstein
Jul 13, 2014

This more than the top of the top getting traditional contracts is what excites me.

Richard
Jul 13, 2014

“In the old model the knitter made $10 per hat. In the new model, the knitter makes about $23 per hat. That’s a big deal.”If this is true, it’s breaches the laws of economics. That cost of the Hat should (and will) fall so that the so that Marginal revenue = marginal cost. Retailers are ironically framing the sales price. But with brick and morters fall, that framing will disapear and prices will fall. Margins for the knitter will revert to the mean.

fredwilson
Jul 13, 2014

actually that has happened.http://etsy.me/1qwOEPBbut i like to keep my posts simple. i did not want to or need to dive into marginal cost analysis.

Laura Yecies
Jul 13, 2014

And similarly the fares for Uber, Lyft etc are going down

AlexHammer
Jul 13, 2014

What is the tipping point such that the critical mass of hat buyers decides that they wish to buy their hats on Etsy?We can identify the differentiators more clearly on Amazon and eBay that made them the 800 pound gorilla (size, selection, convenience, price and speed, etc.).

awaldstein
Jul 13, 2014

Cost doesn’t always fall with an aggregated artisanal market actually.The core of the model is small production that carries a solvent market model not necessarily one that can scale.

Richard
Jul 13, 2014

No doubt that there are margins that can be captured for the artesian brand. But, just watch out for the fallacy of this time is different.

awaldstein
Jul 13, 2014

I’ll keep a look on this.

LE
Jul 13, 2014

The core of the model is small productionAnd that small production is what makes it attractive to some buyers as well. Exclusivity. I like the fact that my car isn’t all over the place. I’m sure you like the fact that some of the wines that you drink aren’t in every wine store.Otoh I go with the same jeans that are sold everywhere because for that item it doesn’t matter in my brain.

awaldstein
Jul 13, 2014

Actually the model for Etsy is inclusive (open to everyone) and the artisanal model cross all types of products is more unique that scarce and that drives different thinking around pricing.

Girish Mehta
Jul 13, 2014

Did you mean cost or price Arnold ? Thanks.

awaldstein
Jul 13, 2014

Cost and price actually.You make rocking chairs out of hand crafted wood and rushes in Vermont. You sell what you can make through Etsy. COGS doesn’t come down.If you decide to become a factory and step up production then the product is different actually, questionable artisanal and this changes things.To my understanding there have been a number of cases of this, understandable and discussions about the work ‘hand made’ around it.

Girish Mehta
Jul 13, 2014

Yes, understood the point about COGS-scale. But the price typically drops to marginal cost in capitalism with disintermediation. In this hypothetical example Fred gave, the end customer price remains same while the supplier’s margin increases many times (much more than 2.3X, since the margin was a subset of the initial $10).So, i was curious – do you see the artisanal products having this kind of margins & pricing power ? I asked since you responded to Rich’s comment which was about price dropping close to marginal cost (and I agree on the COGS-scale point separately). Thanksp.s. am currently reading “The zero marginal cost society” by Jeremy Rifkin. Touches on some of this.

awaldstein
Jul 13, 2014

Checking out the book–thanks.Etsy style marketplaces create the market for the vendor so the increase in margin is the reduction of customer acquisition costs mostly.The increase margin has nothing in this case to do with COGs but cost of marketing and selling.This hits the floor so by definition with scale (aka artisanal) the cost and the customer prices has a floor and a ceiling.

pointsnfigures
Jul 13, 2014

At the same time, Etsy unleashes the creativity of the artist-which includes building a brand and aura around what they make. Successful branding would allow them to charge higher prices than the mean and capture more of the consumer/producer surplus

Richard
Jul 13, 2014

Agreed, but the Beauty of Etsy is that it is not supply constrained.

fredwilson
Jul 13, 2014

Yuppppppppp

LE
Jul 13, 2014

Etsy unleashes the creativity of the artist-whichEtsy is long tail, right? I wonder what the statistics are (are they available?) on exactly what is selling and in what quantities on etsy? It’s basically supposed to be an aggregater of hobby craftsmen, right?So I take a look at etsy another time. And you know it’s not all “artists” and creativity.People appear to be gaming with products that are just made the traditional way. I just randomly pulled this up – a really inexpensive sack made in China. N=1 here but I would doubt (by my gut) that I happened to find the one exception to the rule. (Of course if this is a very small percentage then I am wrong..)https://www.etsy.com/listin…This seller has made a total of 641 sales on all of their items. But if you look at some of these they don’t exactly look bespoke they look like typical factory made (by cheap chinese labor) :https://www.etsy.com/shop/C…For example this:https://www.etsy.com/listin…They say it’s “vintage handcrafted black leather phone case”. Sure it’s “hand crafted” but it’s obvious that it’s not the “handcrafted” that people are probably thinking it is.

Matt Zagaja
Jul 13, 2014

I’m still waiting for that memo to reach Giorgio Armani.

Richard
Jul 13, 2014

Really? Take a hard look at the Ebida of the fashion industry.

Elia Freedman
Jul 13, 2014

It will fall below the mean. In the old days, the hat knitter needed more than just a great product to be successful. She also needed relationships with distributors, etc. Those relationships were very important, giving her a competitive advantage while at the same time limiting the competition. Before she got $10/unit.Now? Anyone who thinks they can knit can put a hat on Etsy. All it take is a couple of dollars, a few pictures and a description. Anyone shopping for knit hats will find 1000 variations, none of which can differentiate themselves from the others effectively because a sale comes down a star rating, a description and a few pictures.The hat knitter, who used to make a nice income from her knit hats, still has a great product and a loyal following, sells just as many units as she used to but at 1/10th the price. After all, there are only so many levers to pull in the marketing mix.Etsy gets to say there were more knit hats sold than ever before and that they paid out $10M to hat knitters world wide, but each hat knitter gets a few hundred dollars per month.We haven’t really changed anything, have we? We replaced one distributor with another, and in many cases we have created distributors where there never were dominant and/or monopolistic ones in the past.

PeterisP
Jul 14, 2014

There’s a big change in who is allowed to participate in the market. Previously, the boutique and the knitter had to be in the same location. Nowadays, local grannies can access the global market and export their hats via etsy to the USA for a much better price than locally; so not only the large companies but also single-person manufacturers can work globally.

William Mougayar
Jul 13, 2014

What Amazon has is the power of marketing and distribution which arguably traditional publishers previously had, to some extent.But is it monopoly or is it an absolute validation that the e-model is working perfectly well?Despite Amazon’s dominance, the field is open for more innovation and new players like FGPress http://fgpress.com/ who give even more control (and profits) to the authors (disclosure: I’m writing a startup marketing book to be published by FGPress)

LIAD
Jul 13, 2014

Doesn’t there always have to be a middleman? It just takes different forms.Eg Department store => Etsy.Ay, you’ll tell me holy grail is fully decentralised, distributed systems as a proxy for middlemen, but even then core devs, miners with highest hashing rates, etc control the show.It seems to me, there always must be a marketplace owner, broker etc – it’s form and business economics just change over time.Goal is always to sit inbetween buyer and seller. You just need to find the best way of doing that given current realities

William Mougayar
Jul 13, 2014

Good point, but the role of the “center” changes. It controls less, but facilitates more.

pointsnfigures
Jul 13, 2014

Network beats Hierarchy

Luis De Leon
Jul 13, 2014

I was thinking this myself while reading the article, there will always be some middle-something, but the layer is going to be so thin, that as William Mougayar pointed out, it will control less and facilitate more.

Laura Yecies
Jul 13, 2014

Yes the middle layer gets very thin – not just replacing stores but potentially multiple steps in the distribution chain

awaldstein
Jul 13, 2014

It controls the same amount unless there are competitors.

Nathan Lustig
Jul 13, 2014

Exactly. Plus, even worse, as companies become monopolies all the rewards, even if smaller on a per transaction basis, go to a smaller and smaller slice of the population. That’s not sustainable in the long run.

Jeff Jarvis
Jul 13, 2014

Must a platform be a middleman? A true middleman, I think, is a gatekeeper who takes a greater measure of control (and risk). A platform enables more unpredictable connections and transactions out of the control of that platform. In other words, Macy’s decides what to sell (and takes inventory risk and thus takes a larger piece of the sale). Etsy doesn’t decide what to sell and doesn’t take risk and thus takes a smaller piece of the sale. The maker on Etsy has more opportunity than the maker trying to get through Macy’s. Is Etsy a middleman? If it is, then it’s a much shorter hurdle to jump over in the middle.

LE
Jul 13, 2014

The maker on Etsy has more opportunity than the maker trying to get through Macy’s.If someone asked me “hey I met someone, a buyer at a party and they said they can get me into Macy’s” I would tell them to go with Macy’s as the better starting opportunity. If your item works at Macy’s it will get you into more locations and then the mere fact that you are in Macy’s will open doors at other retailers both large and small (assuming not some kind of exclusive deal). Macy’s is a stepping stone. And it’s a different market than a bespoke Etsy.As far as “hurdle to jump” you are definitely right. But in business “hurdles to jump” also becomes “barrier to entry” and is good for those who put in the effort and succeed. And barriers to entry keep everyone and their uncle out and the pains in the asses out of the business. It’s the reason I bought printing machinery rather than being a printing broker (when I was in that business). It’s the reason that discmakers.com produced everything in house instead of using outside contractors.Easy != opportunity in all cases over time. Easy = competition actually in many cases.

LE
Jul 13, 2014

Would like to add that my example of “met at a party” doesn’t reinforce my actual point which is getting into Macy’s (even by traditional means) is well worth the effort.As I found when trying to get publicity and writing to reporters they are always looking for things to write about. If you have something interesting to say they need you as much as you need them. (And I’m sure you can verify this). They need content and material. (Recent Amelia Earhart story..)So I should have rephrased what I said below and remove the “at a party” I didn’t mean that actually.

Kenneth Buchanan
Jul 15, 2014

Can a middleman have gatekeeper, platform, and other duties that either they buyer or seller don’t want to do? Aren’t both Etsy and Macy’s true middlemen, who require different percentages based on their added value (i.e. risk)?

Kenneth Buchanan
Jul 15, 2014

Yep… The partners change, but the song stays the same!

Subrahmanyam
Jul 13, 2014

I guess the challenge increasingly is that many of the ‘startups’ that you have mentioned are raising significant amounts of money, using that to subsidize their service, while offering a superior customer experience. A combo of price and experience is their way of hitting at the incumbent, and then as they gain scale, they are becoming the new incumbents. We seem to be replacing one set of ungainly incumbents, with another set of more suave, in-tune-with-the-times incumbents. Technology is definitely helping create these new incumbents. I guess for the sake of a healthy market, all stakeholders need to continue to identify new players who will, if not turn into the new incumbent, atleast slow down some of the large new players.

BillMcNeely
Jul 13, 2014

“The old bosses replaced by the new bosses” This couldn’t be more true than when Uber offers it’s lease to own program to get a car. It reminds me of renting a taxi for the day (just for the week) Last week my efforts resulted in $490. After Tolls, Uber’s Fee and the car payment I netted $38 for the week. The previous 2 week’s net was $44 and $54 respectfully.Now I was big boy and knew the risks when I agreed to the terms. That was out weighed by my need for a car and the opportunity to use in conjunction with my startup DelivrToMeBut it’s hard to pay the rent and eat

LE
Jul 13, 2014

my startup DelivrToMeHow is that going, Bill?

BillMcNeely
Jul 13, 2014

DelivrToMe is suffering from my distraction with making ends meet.I participated in the StartUp Weekend NEXT program and that went well, gaining my first customer. Brevida/Chia Vida.I am working on getting my second customer as we speak a company I met in Whole Foods.I am failing on the prospecting/sales side.I am currently interviewing for a GM position here in Dallas with TaxiMagic

LE
Jul 13, 2014

It’s extremely difficult, without a cushion, to embark on something that needs to play out over time.I started a business out of college and determined in the first week that I would need money to do that business – money that I didn’t have. So I started another business thinking I could earn money from that to do the first business. I did, but it took 9 years until I sold it. By that point it wasn’t practical to do the first idea.The first idea was to sell computer supplies by mail order catalog (after trying to sell by cold calling and getting accounts “the idea” I quickly realized I needed to do it by mail order). Problem was I didn’t have the money to print a catalog or operate that business. So I started a printing business instead (something I knew nothing at all about – zip zilch). That became all consuming and I made money. But by the end of the 80’s (when I sold) selling computer supplies by mail order was already mature and I didn’t want to bet the ranch on being a competitor. So I learned that business is full time whatever you are in.Interestingly in the 2nd business (done to make money for the first business) business came in right away when I cold called because it was “low hanging fruit” and people needed what I was selling (and this was without any ability at all in what I was doing).Unfortunately you will be handcuffed by the new job you are getting but I don’t see that there is really any way around that. (Of course if you make industry contacts you might be able to get together with others and build something which is funded…)

BillMcNeely
Jul 14, 2014

similar experience here. I realized I needed money and a car after 2 months.I turned to Uber and it’s lease to own program to get the car and to make money to pay my bills.I took delivery of the car but the phone came 7 weeks later. I had to make up all those weekly payments.I think I am caught up now but it’s been painful.

Mario Cantin
Jul 13, 2014

This is one of those posts upon which I can ponder for hours, thinking about various ramifications — very useful and well articulated, thank you.For sure, it is a powerful strategical advantage to be keeping in mind the notion that competition for internet platform monopolies will be largely bottoms up.This will undoubtedly be true for a long time to come now.I can’t help wonder, though, what will come after that? Oh well, we’ll eventually find out…(Maybe crypto-currencies will be by far the biggest disruptors yet)

fredwilson
Jul 13, 2014

I think so

LE
Jul 13, 2014

Front page article Weekend WSJ was regarding companies using the Yuan to pay instead of USD:http://online.wsj.com/artic…The yuan is making inroads with U.S. firms now because it is becoming more cost-efficient to pay in the currency. American importers can often negotiate better prices with Chinese suppliers if they agree to use yuan to make a purchase. Chinese companies tend to increase prices when they settle trades in dollars as a way to offset potential exchange-rate fluctuations.

Jeff Jarvis
Jul 13, 2014

Excellent and thoughtful post, Fred.I’ve been arguing to students for some time that we are shifting from vertically integrated corporations and industries to ecosystems made up of three layers: (1) platforms, which enable the birth and growth of (2) entrepreneurial enterprises built atop them and then (3) networks that bring together these disparate enterprises into critical mass for such things as sharing advertising revenue or administrative costs. I’m doing a lot of work in the New Jersey news ecosystem on building such networks.I think we are on a timeline. The platforms must come first and they are gaining the lion’s share of the value and power, it’s true. But I do think/hope that balance will shift somewhat as enterprises gain heft, especially as they form into networks. (Will these networks become the new trade guilds?)Now it’s true that as long as a platform is a monopoly, there’s little the other layers can do. But that’s why folks like you invest in new competitors to those monopolies.eBay was the first and only place to sell you stuff and break out of the old retail model you outline. When eBay thought it had a chokehold and raised its rates, what happened? Amazon saw an opportunity and took away some business. Etsy saw an opportunity and started.Platforms are going to have to grapple with their concentrations of power and wealth. This is why Larry and Sergey presciently licensed their employees to ask: “Is that evil?” Though I think the “right to be forgotten” decision in Europe is a travesty to free speech, I do think that Google’s creation of an advisory board is an important step. I think all platforms would be wise to have advisory boards of relevant peers to help keep them honest. What if Twitter or the Apple App store or Android or Facebook had had an advisory board of developers? Google, I’ve long argued, should have an advisory board of advertisers to help Google deal with its power-of-god to kill businesses when they are deemed spammers and the very occasional good guy gets thrown out with the brine.Yes, middlemen are doomed. Coase’s firm is now often unnecessary. Vertical integration is not as advantageous as a network. Ecosystems replace industries. But bad players in ecosystems — like phone-company and cable monopolies — pollute the atmosphere. That’s what you’re asking us to deal with now….

Richard
Jul 13, 2014

You seem to be mixing apples and oranges (and bananas).

Jeff Jarvis
Jul 13, 2014

‘splain, please.

LE
Jul 13, 2014

I’ve been arguing to students for some time that we are shifting from vertically integrated corporations and industries to ecosystems made up of three layers: (1) platforms, which enable the birth and growth of (2) entrepreneurial enterprises built atop them and then (3) networks that bring together these disparate enterprises into critical mass for such things as sharing advertising revenue or administrative costs. I’m doing a lot of work in the New Jersey news ecosystem on building such networks.With all due respect (what you say before you blast someone?) that has way to many concept words strung together to keep a clueless (about business) “student” engaged and understanding the point you are trying to make. The above concepts need to be dumbed down with some examples and less business wordy catch phrases of the decade. After reading it four times I think I get the point though. But I shouldn’t have to read it four times.This is why Larry and Sergey presciently licensed their employees to ask: “Is that evil?”They do plenty of things that suck. They kill products, you can’t get in touch with them for their free products, the stop improving things that they have lost interest in and so on. While not evil does cause plenty of pain and suffering. In the end they are a business like any business is a business. I’ve had better experiences dealing with a ton of other companies (over time) that didn’t have a “don’t be evil” mantra.

Jeff Jarvis
Jul 13, 2014

Well, in the first point, you seem to be complaining about my prose more than the idea. And in the second, I hardly think that killing Reader caused “plenty of pain and suffering.” It’s just a web service. Let’s keep our perspective, shall we? The point of “don’t be evil” is by all means a business point: if Google screws users, it can and will lose business immediately to the competent albeit much smaller competitors it has in virtually every line of business (except for the one that matters: advertising).

LE
Jul 13, 2014

you seem to be complaining about my prose more than the idea.I can’t “get” your idea if I don’t understand your prose. If I am confused by how you say something I won’t understand and then won’t learn anything from what you say. This is the key to selling.And in the second, I hardly think that killing Reader caused “plenty of pain and suffering.” It’s just a web service.I didn’t mention reader. I said “they kill products”. Was plural.So here is an article (that I believe to be correct) regarding “the google graveyard”:http://www.slate.com/articl…Many people “in the biz” are reluctant to use new google offerings for fear of google killing them off (also a common theme on news.ycombinator.com )if Google screws users, it can and will lose business immediately to the competent albeit much smaller competitorsThe money of advertising is what drives google. People aren’t going to stop using google for search anytime soon no matter what they do. Most people in what is known as “fly over country” or “normals” don’t care about that privacy shit either. At least not enough to change their search habits. That’s all an invention of techies who whine about that stuff. If they did they’d be flocking to ddg which they are not.Of course “screwing” is a relative term. Keep in mind that the majority of what googles gives people doesn’t cost anything it’s free. This is not like an airline jerking you around so the next time you decide not to use that airline because you are pissed off. And changing from a free service like gmail, quite ubiquitous, is a major undertaking for most people.

JLM
Jul 13, 2014

.Sometimes we make an error of composition in that we think the new order has to replace the old order immediately. In most instances, they co-exist for a long, long time until finally only the efficiencies and pricing make the choice for us.A perfect example is the tract home building business v the custom home business.Where once tract/production home businesses had huge buying efficiencies these price advantages are almost non-existent today (due to the Internet exposure of the best possible prices) while at the same time many of the most glamorous features of a custom home are now de rigeuer in even a production home (granite counter tops and stainless steel appliances and plumbing hardware).Both businesses are moving toward each other.What is really flattening things is the unfettered flow of information particularly as it relates to innovation.JLM.

AlexHammer
Jul 13, 2014

Some of this is beyond me but I think Jeff that you make a lot of sense.I am wondering whether both the law of accelerating returns (famous for example by Ray Kurzweil) and increased rates of adoption and product cycles have serious implications for platforms as well, specifically that they will both consolidate (and potentially turn over) more quickly.Thought of another way, there will be greater concentrations of wealth and power, but when these crash or are displaced, the pain, hurt and loss will be greater than ever.Never before has it been, individual, company and industry-wide, as easy to go from riches to rags so quickly (and completely).We’re all a few steps away from Rip Van Winkle today.

falicon
Jul 13, 2014

“I’m doing a lot of work in the New Jersey news ecosystem on building such networks.” <- if you need help on any of this please ping me…would love to learn more about what you are building (and help where/when I can)!

LE
Jul 13, 2014

and help where/when I canMake sure “help” = $$ in your pocket.

falicon
Jul 13, 2014

I get paid in karma, knowledge, and experience… 🙂

LE
Jul 13, 2014

Very possible that helping can lead to other things. [1]And learning and experience can always be justified as a reason to do something.And perhaps your financial situation is such that it doesn’t matter (for all I know you are a Johnson and Johnson heir?)However (not a comment on JJ here btw) people will suck out of you what they can and in the end you will need money to pay for your kids college education. (Have you seen the cost lately? (that’s a joke of course you have)).Anyway looks like what JJ is doing is a paid gig:Business ties: I have consulted for various media companies. Currently this includes NJ.com at Advance Publications, my former employer; Advance owns Condé Nast, Newhouse Newspapers, Parade, American City Business Journals, Bright House cable, and Advance Internet, where I used to work. I am on the advisory board for Digital First Media along with Jay Rosen and Emily Bell. I am currently working on projects for the Telegraph in London and Stern in Germany. Until December 2006, I was consulting regularly for The New York Times Company at its About.com subsidiary. I have spoken for groups at Best Buy, Sky News (where I also consulted briefly), VH1, Hearst, Meredith, The Week, Hill & Knowlton, (and it goes on and on btw I cut it short).[1] Now it’s entirely possible that helping JJ (or someone similar) will lead to a paid gig or some tangible benefit of course. Not arguing against a loss leader which is a valid way to gain a client or benefit. Just don’t be a schmuck. Karma doesn’t pay for college. Manage time spent on karma carefully.

falicon
Jul 13, 2014

+100 🙂

Jeff Jarvis
Jul 14, 2014

What’s your problem?

LE
Jul 14, 2014

In what sense exactly? You’re insulting me it seems. [1]Spend much time here? Read AVC every day, the comments?If so, it reminds me of the time that someone stopped by AVC.com one day (never to be heard of again iirc) and was annoyed with something that Fake Grimlock said. And told him not to do it anymore. (Do you know who FG is? Do you visit and read all the comments here every single day like some of the rest of us do?)I’d be the last one to say that everyone here agrees with what I say or my opinions. But most people either say nothing or they reply with some intelligent comment or retort. Or a joke like Jim Hirschfeld.Saying “what is your problem” is neither of those.Separately I happen to know Falicon and he typically seems to like my comments (and has even corresponded by email). And for the record I’ve helped numerous people at AVC and haven’t charged a dime. Did you know that? Probably not. You just assumed I was some random dick on the internet. To be clear, I stand by my comment above. Noting the qualifications which are important.Now if I have gotten what you said wrong then my apologies. (I don’t think that is the case so I just think you don’t know enough about AVC to know why it is special because you don’t spend enough time here.)The good news is in the end I don’t really give a shit about what you or anyone else here thinks. I’m not running a popularity contest and never have been. Although as I’ve stated before of course I would like people to enjoy and appreciate my perspective. And agree with me! Obviously.[1] If you re-read what I said I specifically indicated “not a comment on JJ here btw”. After all, you never asked him for help, he offered it. And I went to enough length to indicate and be circumspect in my point.

falicon
Jul 14, 2014

p.s. I *do* like your comments…sometimes I even agree with them …though I would never admit that in public…err..well…um… 🙂

Guilds are a form of top down creation with accrediting. Networks don’t have top down or accrediting issues, but they are hard to break into

JamesHRH
Jul 15, 2014

Jeff, all due respect, but you are just wrong. A lot.Technology companies do one thing, universally: they reduce the number of middlemen providers, drastically. Note that the middleman position does not disappear – just most of the competition in that area.As for Larry & Sergey, they highlighted evil in the company motto to pin the horns on that other destroyer of middlemen – Bill Gates (seen a lot of competition in the operating systems space in the last 20 years?). Your purity of purpose is self projection, in the extreme.Tech competition is business competition @ a 10X rate – you get to the incumbent and the alternative way faster than anywhere else. Search & social do not even have real alternatives right now – amazing, when you think about it. Total snuff out in those spaces.The network ecosystem noise is just that – noise.If things are so flat, why do so few people have so much? Its not flatter, its that the spikes are fewer and they are way, way bigger.Or, the new generation of unicorns has mondo big horns.

Kenneth Buchanan
Jul 15, 2014

Well Said!

Gail Gardner
Jul 16, 2014

Google is anything but a “benign monopoly”. Tell that to the small businesses that made $1 million plus for 10-12 years only to have Google decide to drop 58-70% of their traffic and income overnight. Monopolies are ALWAYS dangerous. Amazon is the Walmart of the Internet. All three of these monopolies endanger small business. They ARE the middlemen who suck the profits away from the talent.We do not need all-powerful monopolistic middle men. When there are few places to sell, the talent has no bargaining power. Ask anyone who tries to sell on Amazon. To get volume the price must be dropped so low there is almost no profit in selling. These are all an example of our race to the bottom. Eventually although products will be as cheap as they can be, very few Americans will have money to buy any of them.

Amol Sarva
Jul 13, 2014

Similar thought I had this morning comparing Amazon to 1960s Xerox which I was just reading about.”Turns out the great unbundling has network effects” <– http://a.sarva.co has my post

fredwilson
Jul 13, 2014

Ooooh. I’ll head over and read it

William Mougayar
Jul 13, 2014

In hindsight, Dis-intermediation was the Internet’s first promise back from 1995. Add to that Unbundling + Network Effects, and we have the recipe for total value chain re-configurations of just about everything.

vruz
Jul 13, 2014

And on the other side, singularities like Facebook and Google concentrating massive amounts of data. They privatised network effects.I have a quad core mobile device, and mobiles will soon become miniature supercomputers, the cloud model is not good anymore.We don’t need Google or Facebook to benefit from network effects, in fact their quasi-monopolies will probably be preventing us from enjoying those benefits in the long run. At a premium.

ShanaC
Jul 14, 2014

Unbundling creates an issue in that you become far less sure of the true cost. I experienced this this morning, where I’m still not sure how much the ticket to fly to Colorado cost in comparison to a bundled airline

Sebastian Gonzalez
Jul 13, 2014

Bitcoin ultimately depends on the core developers. At the end of the day, isn’t the control of that platform centralized as well?

fredwilson
Jul 13, 2014

There are other blockchains and they are all open source

Sebastian Gonzalez
Jul 13, 2014

Open source doesn’t mean decentralized, does it? The other blockchains just mean competition. When bitcoin’s network effect becomes strong enough it’s gonna be another natural monopoly.

Greg Kieser
Jul 13, 2014

Open source in inherently more decentralized the closed source. Bitcoin will never have a monopoly, in my opinion. There is too much room for improvement and too much incentive for developers/investors etc to support competing coins.

AlexHammer
Jul 13, 2014

Every advancement becomes co-opted by the elite (in technology social media and even the Internet for example),I don’t know how it will occur, but I suspect that in the world of the blockchain, even, as is famously said, over time, “everything will be fair, but fairer for some than for others”.Think public education. It has served society immensely by creating a much higher floor. But it is far from equal, school to school.

majamalu
Jul 13, 2014

Core developers are not in control, as decisions are made by consensus and only with broad community support.Here’s a more thorough response: https://bitcointalk.org/ind…

Laura Yecies
Jul 13, 2014

Are you saying they should invest in what will undo the market power for the public good of stopping the monopoly or for the potential return? My experience is that investors are allergic to markets with a dominant player though personally, as an entrepreneur, I find that competition exhilarating http://thekitchensync.co/20…

LE
Jul 13, 2014

Take Etsy for example. Before Etsy, if you made knit hats, you would sell them to a boutique for $10, and that boutique would turn around and sell them to your customers for $25.While this math might be correct for clothing (I don’t know if it is but I will take you word for it) it’s not true for giftware margins. Plus, typically in any setup like this there are middlemen (wholesalers or manufacturers reps) who earn value by taking the person who knits hats (or makes fruit bowls) and putting them in 1000 stores overnight which gives them the ability to lower their manufacturing costs and make more money overall.This is a well oiled machine and has been going on for some time.And the people making the goods are typically happy if their goods are good enough and desirable enough to fit into the scheme of how this all works. Of course if you are talking about small crafty things that probably do not stand a chance of making into big time distribution what you are saying is fine.When my dad was a wholesale importer he used to a) source goods overseas (and domestically to a lesser extent) b) attend multiple gift shows c) design, print and mail catalogs d) deal with manufacturers reps to get more stores on board e) schlep me with him on visits to department stores. All of this cost money and was a necessary part of the business. All of this was so that the things that he wholesaled (he did make a few items but mainly assembled or distributed things that others made) would end up in retail stores. Where, you know, people still do buy things – that is at the retail level.Repeating, all of the above costs time and money. And it did provide value. And people were constantly providing him with free samples hoping to get distributed. And yes as a gatekeeper he got to decide what was good that he thought would sell and what would not sell (he did have competitors as well obviously). And those people trying to get items into distribution were not hoping to sell small quantities they were hoping to hit it big.

christopolis
Jul 13, 2014

Holy guacamole. A monopoly in publishing? There are thousands and thousands of publishers(more than have ever existed). There are hundreds of places to sell books(more than have ever existed).Your use of the word monopoly simply means people prefer something. And you want to put a stop to that or think it is an issue. Man alive.

Alex Dunsdon
Jul 13, 2014

This is a great post

morsels1
Jul 13, 2014

At the very least, the internet has opened up the possibility of more options. For example, before we created SkillBridge.co, you had two choices: 1. Hire overpriced management consulting firms like Bain or McKinsey that won’t walk through your front door for less than $500,000. 2. Choose from America’s 250,000 independent consultants, but know that there is no place on the internet to learn about which of them are the best match for your business need. At SkillBridge, thanks to the Internet, we have changed this by creating more efficient matches. We are giving businesses far more choice than they previously had.

Jeff Jarvis
Jul 13, 2014

There’s something larger happening that I’ve lectured McKinsey and Bain consultants about: They made their livings trafficking in secrets: “We have the keys to the universe and if you’re lucky, you’ll pay us to get access to them.” Now consultants and experts share what they know publicly — as Fred does here — to get deal flow. So a platform that enables that open sharing — whether you or LinkedIn or blogs — can take on a new role as an enabler of those transactions, eh?

morsels1
Jul 13, 2014

Our #1 core value at SkillBridge.co is transparency. We don’t believe in trafficking in secrets. We want our customers to know what they’re paying for. That’s how we hope to win in the long-run – by providing top-tier white-collar labor to businesses to plug in as needed for essential projects. Stay tuned for some more news from us on the open sharing front within the next few weeks…

LE
Jul 13, 2014

Now consultants and experts share what they know publicly — as Fred does here — to get deal flow.The amount of info you share publicly (to get deal flow or to get business) has to be weighed with what you might lose by your competitors having access to that info.Trafficking in secrets is still a valid business model by the way.And even people who tend to be more open and share info don’t, um, “open the kimono” to everything and anything. [1] And in fact some of the can’t even use the expression “open the kimono” without the PC police taking shots at them.[1] Fred doesn’t share everything he does or everything he knows publicly. He shares some of the things. My guess is that it’s closer to “some” than “almost everything”.

LE
Jul 13, 2014

Hire overpriced management consulting firms like Bain or McKinsey that won’t walk through your front door for less than $500,000By calling them “overpriced” you seem to be implying that anyone (a company) who uses them is a fool and they don’t provide value for the money they are charging. You can’t in all seriousness think that is the case, do you?Separately if your consultants are good (and they are good at business and not stupid) they will jack up their rates to meet the supply and demand since you only have so many hours to consult (as a single person). This is quite common with other professionals (lawyers) who end up starting with one type of client but then segue to more valuable clients. Or passing work off that can be done by an associate. A single consultant (if I understand your model) has to do all that work themselves. All of it.Not saying by the way that there aren’t efficiencies in an operation that isn’t top heavy with fancy offices and many expenses. But at the end of the day, for people using some of these firms, it’s whether they get value from what they paid not whether they could have paid less.

morsels1
Jul 14, 2014

Hi LE,I respect your opinion, but let me just explain why firms like Bain and McKinsey are overpriced: As you noted, when you buy their services, you are paying for their fancy offices, first class travel, myriad perks, and then on top of that you are paying for partners’ fees. Yes, when you hire these firms, a large % of your money -same as when you hire a large law firm- goes directly into the partners’ pockets. At SkillBridge.co, we have thousands of ex-Bain and ex-McKinsey consultants who are willing to do the same work for, say, $125 per hour, rather than the $700 per hour that McKinsey bills him/her out at. This means the consultant earns well more than $1,000 a day, which is on par with their salary at McKinsey. When working for SkillBridge, consultants don’t have to take on jobs that they aren’t interested in. All projects are opt-in.You are correct that we’re not at a place yet where we can staff large teams, but we will get there eventually.And as to your point about “jacking up rates,” that isn’t an issue, as there will be someone who is highly qualified and wiling to do the same job at a “market” price.- Stephen Robert Morse

LE
Jul 14, 2014

Excellent response.This, which you said, needs to be part of your marketing message (modified of course) and worked into your site in a few places:At SkillBridge.co, we have thousands of ex-Bain and ex-McKinsey consultants who are willing to do the same work for, say, $125 per hour, rather than the $700 per hour that McKinsey bills him/her out at. This means the consultant earns well more than $1,000 a day, which is on par with their salary at McKinsey (Example: Would insert the word “top” and “talented” into it btw …would leave out what they earn in a day also..obv. you didn’t write the copy for the site but since I quoted it I will mention it.)And even more so it needs to be front and center on your site. Home page. I’m not really seeing the value stated above hitting me over the head on the site. And it’s a very powerful message. It needs to be in a few places.Same consultants.Same Value.Same results.50% of the price. (or however you want to state it).This statement (from your site) seems to be more focused on what’s good for the consultant:SkillBridge was founded with the belief that talented independent consulting professionals who are passionate about the work they do, should be able to easily connect with high impact organizations that need expert help. If I am “buying” I don’t care about that. What I care about is that I can have someone who would typically cost $700 and only pay $125. That’s the hot button. Passion by the way is not results. My stepson is passionate about basketball but isn’t solving the Knicks problems anytime soon. I think $125 per hour is to cheap though. Rates should vary with several factors (maybe they do already..) $125 to $250 per hour for example.(Btw, I still think there is a benefit to others who might typically help a consultant (co workers) but that might not be enough to overcome the price differential).

morsels1
Jul 14, 2014

Thanks for the advice. I will let our branding team know. Oh wait, I am our branding team. Really, thanks, this is quite helpful.

sethberman
Jul 13, 2014

Sounds like you are more bullish on your investment in Sidecar than that in Hailo as a viable alternative to Uber?

Disintermediation
Jul 13, 2014

Fred, applaud your intent to invest in bitcoin and blockchain based technologies, but could you explain how Coinbase represents a “truly distributed peer to peer marketplace without the Internet middleman”? I see it as the Amex of bitcoin, creating a new platform, complete with central authority. One of the most successful bitcoin companies to date represents a centralized network no different than AXP/PayPal.

JLM
Jul 13, 2014

.I think pricing is one of the most misunderstood elements of business today.As an example, I don’t think the elimination of the middleman means the profit that formerly went to the middleman now goes to the producer rather I think the producer puts a fair margin on their effort (maybe a bit more than fair but who’s watching?) and passes that lower cost along to the ultimate consumer.Price inefficiencies can only stand until some other disrupter/producer sees them as a target to acquire market share.The perfect example of this was Charles Schwab who leveraged his knowledge of the efficiency of the real cost to electronically execute a trade order and the realization that a $100 stock did not cost more to execute than a $10 stock.In many ways, this was the Internet before the Internet was the Internet.Prices will spiral downward until the margin at the real sales point is a fair or competitive margin but it will never ultimately approximate the value of the foregone margin in the old system.JLM.

LE
Jul 13, 2014

The perfect example of this was Charles Schwab who leveraged his knowledge of the efficiency of the real cost to electronically execute a trade order and the realization that a $100 stock did not cost more to execute than a $10 stock.Funny thought that (anecdotal) back in that day people were able to actually make money in the market if they had a good broker, right? Even if they paid higher trading costs? Besides if you are holding stock is the cost of that broker that significant? (Question not a statement). And the broker controlled certain information or knew things that maybe weren’t well known?Personally I don’t mind paying for expertise (if it is expertise) and find that it’s a great time saver. I spent over an hour trying to pick out a restaurant in an area that I didn’t know by looking at pictures and reading reviews. I would have much rather paid someone to point me in the right direction after hearing a 3 second blurb on what was important to me as opposed to filtering someone else’s rack of answers. My first date with my now wife I asked someone from an area I didn’t know (by email) and they gave me a few great choices. Worked out very well.I mean if I wanted to move to Austin no doubt you could tell me in a very short time and after talking to me exactly where I should be and for what reasons. While I could get this info by reading and taking time it would be much easier to just trust a middleman to give me the answers. Even if the middle was paid.Personally I am not a fan of all this “race to the bottom” in costs at the expense of quality and shifting the work to the buyer where time is substituted for money.I’d rather be able to walk into a store with a bunch of laptop bags and pick one out that I liked (after seeing in in person) rather than buy it over the internet. But that merchandise becomes less cost effective to sell in person because of online price competition.

JLM
Jul 13, 2014

.In some ways you validate my earlier comment — old ways die slowly and often co-exist with new ways.I was in Best Buy yesterday. I’m thinking of going to an ultrabook with a docking station, ultrawide monitor, etc and was looking for a particular brand.The BB guy did not have it and he — HE — sent me to Amazon to find it.This is the melding of the old and new. It will co-exist for a long time.JLM.

LE
Jul 13, 2014

The BB guy did not have it and he — HE — sent me to Amazon to find it.I guess I will assume that is a program at Best Buy to engender customer loyalty so you feel that you can trust them. And to make them the first stop. (Won’t work the sea is a rough mistress..)In traditional business Best Buy would be simply pushing the products that they have. In stock. By using sales techniques. After all it’s “every man for himself time” and it’s not like they are in great shape and can’t use the dime. But of course with the quality level of employee they have and all the blabbing shit that goes on now (easy to blog or whine) it’s hard to do something like that for sure.At the very least you have to wonder why he wasn’t able to pass you off to some specialist (available at the store, by video chat) that can get that product, ship it to you and make money from it? Why let an opportunity go out the door? We aren’t talking about a local 10 man shop a national chain like that should be able to get the business or make money if a lead comes in the door, right? Of course.You know we were commenting the other day about contractors.If you ask a contractor about work he doesn’t do (and he is a hustler ) he will either a) try to sell it to you if he is not busy and make a buck or b) refer you to a friend so he gets a quid pro quo from that friend.

Richard
Jul 13, 2014

Funny thought that (anecdotal) back in that day people were able to actually make money in the market if they had a good broker, right?Wrong

LE
Jul 13, 2014

If they had the right broker. Key “right broker”. Hard to believe that an entire industry survived for that many years if everyone or “most” were getting snookered.Here is an article from 1996 New York Times:http://www.nytimes.com/1996…Specifically:Already, information that people once had to get from a broker, or that was available only to professional investors, is easy to find on the Internet. Prices, analysts’ reports, even the filings companies must make with the S.E.C., can be had quickly and at little or no cost.To me, that restraint of info, and the fact that not everyone had access to it, meant that if you had access to it you stood a better chance of making money in the market. More or less the same way Warren Buffet can make more money buying companies than someone else can. Because he has access to opportunities that the rest of the crybabies don’t. They are hand delivered to him first. His money is better than the same money that comes from others.Think for a second if every deal that Warren did was instantly available to do by anyone and all info (that only Warren generally gets) was out in the open. What would happen then? Price and profit (for Warren) would most certainly go down. (This is talked about in VC as well obviously).

Drew Meyers
Jul 15, 2014

“The perfect example of this was Charles Schwab who leveraged his knowledge of the efficiency of the real cost to electronically execute a trade order and the realization that a $100 stock did not cost more to execute than a $10 stock.”And this is exactly why people taking cracks at disrupting real estate. It doesn’t cost (much) more to sell a $500,000 house as it does to a $100,000 house. Yet an agent makes 5 times as much money for selling a $500,000. No one has figured it out how to crack the nut yet, but I’m betting people will keep trying because of the amount of money potentially at stake.

JLM
Jul 15, 2014

.I am working on such a startup (REXUS) myself as we speak. Please be quiet.The big low hanging fruit is the huge commercial transactions — the $50-1,000MM deals.The numbers are huge. I have read that almost 15% of all the world’s wealth is held in large commercial real estate.The big thing is it trades constantly and not just once.Now, please be quiet.JLM.

Drew Meyers
Jul 15, 2014

Haha, I’ll be sure to keep it quiet.OpenDoor is the latest attempt: http://geekestateblog.com/b…I don’t know the commercial side of the business that well, but happy to chat anytime if you’d like.

Guest
Jul 13, 2014

.

Matt Zagaja
Jul 13, 2014

Lots of networks being built through the power of data. A thought experiment: what if you could opt-in to a collective data store that companies that collect your data exhaust (i.e. Amazon purchase history or Netflix movie watching) were required to forward your data to, and in exchange you received a royalty. The data store would function as an intermediary the way say ASCAP does. Would require a lot of programming if you wanted to build a consumer software product to serve that function but maybe not as much if you set it up as a router proxy that you gave away using the razor blade model or there was a regulatory scheme that forced companies to forward your info to this organization.Lots of reasons it could fail, but maybe some it could succeed.

vruz
Jul 13, 2014

Good start. Keep up with it!

Karl Klept
Jul 13, 2014

“New boss same as the old boss” is truly the most frustrating/disappointing thing about the utterly awesome internet. What is it about the internet that enables this? Part of it is greedy humans that are very happy to see the internet as the mother of all casinos but from a platform/network effects perspective, the problem is that the internet needs search integrated as a core component. What is a network effect other than the hub by which people with mutual interests can find each other and share/collaborate/transact/etc. The internet needs integral, distributed search. This will allow the internet dream to become real and stop concentrated power once and for all.

Pranay Srinivasan
Jul 13, 2014

Another barrier to monopolies being crushed is geography. No longer do you need special skills or connections to enjoy the benefits of arbitrage that overseas services could bring you. You can build, sustain and scale your business like a large Multinational Conglomerate at a fraction of the cost, and pass on those savings to your customer, thereby strengthening your value prop. Ultimately your survival or growth will boil down to efficiency, customer service, brand loyalty, design aesthetics and a compelling value customers derive.Not whether you have secret relationships others dont.

Morgan Warstler
Jul 13, 2014

I think this is a smart concern, but I don’t think you can say the platform winner has vastly larger market power, because digital asset marketplaces are already competing against free.Here, steal Piketty’s book sold for profit, telling everyone capitalism is bad:http://thepiratebay.se/torr…[2014][A]The end game of techno-libertarianism is: Digital Socialism, Atomic Capitalismhttp://www.morganwarstler.c…The 3D print designs will be free. You will only need to own the atoms. And frankly, why would you, since you’d have to unplug from your VR rig to play with the printed object. 🙂

Greg Kieser
Jul 13, 2014

The network effect is a beast but a promising antagonistic effect provided by the blockchain; the ability for the average Joe to invest in these new platforms and thus create an incentive snowball effect of new users/developers/testers. No need to wait for JOBS act Title 3, equity crowdfunding is here and it’s pretty astonishing to watch. Next IPO, coming this Tuesday: storj.io

Greg Cox
Jul 13, 2014

Bear with me because this isn’t a fully formed thought, but I think what we’re seeing is the “democratization” moving up the stack. Where I think by “democratized” we mean non-proprietary platform layer.Early attempts to make a business out of wide area network connectivity attempted to create a proprietary network (e.g. early MSN). Then the Internet created a non-proprietary layer instead. Services like AOL attempted to layer a proprietary platform on top of the Internet, and that worked for a time, but ultimately gave way to a collection of non-proprietary web based alternatives (hotmail, geocities, etc.).The same phenomenon happened in PC app platforms. Initially the proprietary OS was the platform, but then the non-proprietary web replaced the proprietary client OS as the platform for apps. Some would argue that things are going in the opposite direction in mobile, where native apps are arguably dominant, but I have argued that the long run will see us return to non proprietary web as the dominant platform for user mobile experiences.http://expletiveinserted.co…In a way Amazon seeks to be a proprietary platform layer built on the non-proprietary web — initially a platform for distributing physical goods, and now one for digital goods too, that monetizes by being the middleman between producer and consumer.Google Search is another proprietary platform layer built on the non-proprietary web, one that creates a network of information and interests, and that monetizes by intercepting the connection between information and the people interested in that information and adding relevant ads.I think there are two constants in all this. One, that companies will always be looking to build a proprietary platform on top of everything else because of the huge rewards associated with that. And two, while some of those proprietary platforms will succeed for a time, they will always ultimately be superseded by a non-proprietary platform layer, or a collection of technologies/services that effectively constitute a non-proprietary platform.Maybe services like Wattpad are examples of the latter, in that they add to the platform without seeking to own it or be the gatekeeper.

LE
Jul 13, 2014

Interesting link I just found (1996) when responding to a Rich Weisberger comment. I am re-posting it here:An article from 1996 New York Times:http://www.nytimes.com/1996/11…But all of a sudden, innovations in technology, particularly the linkage of computers known as the Internet, are bringing profound changes to Wall Street that hold a lot of promise — and a lot of peril — for the powerful firms that make their money in the securities business.

sigmaalgebra
Jul 13, 2014

Broadly I agree with most of your points, but I would say that in places your argument does have some holes big enough to drive a large, successful, new Internet startup through!One broad objection is the title “Platform Monopolies” where I don’t see Google search as either a “platform” or a “monopoly”.Google search as a ‘platform’? Usually a ‘platform’ is something others build on with leading examples being Microsoft’s Windows where applications developers, e.g., Adobe, Intuit, Oracle, Mozilla, WinZip, one of my favorites Mansfield’s KEDIT, many open source projects, especially Knuth’s TeX, wrote software to run on Windows, Apple’s iPhone, Google’s Android, Apple’s Mac, Adobe’s PDF and Distiller, etc. But AFIK there’s not much software written specifically to take advantage of Google search — right, for an exception maybe there are some third party analysis efforts for SEO, click throughs, etc.Google search as a monopoly? Usually a monopoly is something with no real alternative, say, an electric utility, the NY Metro trains, or a essential pharmaceutical still on patent, but to me Microsoft’s Bing is a quite good alternative to Google search. I use Google search heavily out of habit, because I know a few little features of its UI, because I use it as a spelling corrector, and I also go to their site for YouTube, occasionally translate, and occasionally more.For some years, IBM’s mainframes were a significant monopoly because there was a lot of essential enterprise applications software that would run only on IBM’s operating system and middle-ware software, usually on IBM’s hardware, and that in total would take maybe $1 trillion to rewrite for some other operating system. So the applications software was a ‘must have’, and the $1 trillion was a barrier to entry.For a while Microsoft’s Windows had a monopoly because (A) all the applications developers wrote for Windows because all the users had Windows, and (B) all the users had Windows because all the applications would run on Windows. A joke went that any programmer writing for Windows was really a valuable, unpaid employee of Microsoft!For Amazon and electronic publishing, I see no significant monopoly at all: E.g., anyone can publish their book as a PDF file and distribute it however. E.g., if A. Shiryaev writes more on stochastic processes and publishes via Knuth’s TeX (or Lamport’s LaTeX) and then as PDF, then I will eagerly get a copy, and not necessarily from Amazon.So, what does Amazon have? (A) A very well done Web site and order process. (B) Convenient means of payment. (C) Good customer service. (D) Generally quite low prices. (E) The convenience of a good selection. (F) The often quite good customer reviews. A-F are all nice to have and effective, but they are not essential, and I don’t see Amazon as having a monopoly.> Amazon owns the publishing platform of the digital era.No. Again, in publishing, essentially anyone can sell a PDF. What might be considered ‘owned’ is the software to write and read a PDF, but that cat’s long out of the bag, and there are plenty of ways to create PDFs without Adobe’s Distiller. E.g., there’s a nice program for creating PDF’s with the collection of TeX software I have. For reading a PDF, sure, Adobe’s Acrobat is nicely done, but now Firefox also can display a PDF.Twitter? It’s very different because of its “network of engaged users”: That is, a good Twitter user needs Twitter absolutely or nearly so for their following and followers. Everyone who wants something like Twitter is a Twitter user because all the people they want to follow and all the followers they want are there.YouTube? There’s also Vimeo, Hulu, and Netflix. And a lot of YouTube content I liked has been taken down due to copyright claims. Hmm …. So, just have a video ‘reference’ site where the site just has links to other sites, run for/by the content owners, for the actual content. E.g., on YouTube I was liking the ballet ‘Coppélia’ by The Australian Ballet, but it was taken down. So, I bought the DVD, right, at Amazon (right, a temporary ‘freemium’). But if The Australian Ballet wanted to provide streaming, then they could, say, on Amazon’s AWS, Hulu, Vimeo, NetFlix, etc.So, what’s the advantage of YouTube? It’s only recent: E.g., at the end of a video clip, YouTube puts up a page of ‘recommended’ clips. So, if on YouTube watch the Brahms violin concerto, maybe will get a recommendation, also on YouTube, for the Beethoven violin concerto, the Tchaikovsky violin concerto, or the Brahms piano concerto.So, we’re really talking just recommendations. So, then, a good recommendation engine, that actually hosted nothing, could be better. Then it could have a monopoly if it was really by far the most effective engine for discovery, recommendation, curation, notification, and subscription, had accumulated the best data, and had crucial, core, proprietary technology that was difficult to duplicate or equal (right, working on it).> When a platform like Amazon emerges as the dominant monopoly in publishing, who will keep them honest? When every author has left the publishing house system and has gone direct with Amazon, what does that world look like?Unless Amazon does something much different, the world will still look fine. E.g., if Amazon tries to charge too much, then someone else can bring up a Web site that permits buying and downloading bits of published ‘content’. We’re talking what, maybe a spare room with a few mid-tower case servers on a $100 wire rack shelf unit, a little Web site software, a good Internet connection, and little else — sorry, right, a domain name, tax ID, and business checking account. Right, with some irony, instead, could also host at Amazon’s AWS.Amazon might get a monopoly in selling, say, lawn mowers because of costs of warehousing and shipping; in that case, their advantage — difficult to duplicate or equal, that is, not just a well done Web site — is economies of scale in physical distribution: Right, Amazon has already understood that they want enough warehouses that nearly all their customers are really close to a warehouse and that they can make deliveries the same day, maybe by drones.But for selling bits for publishing, over the Internet, which “shrinks physical distances nearly to zero”, no, Amazon does not have a big advantage — the bits can come as well from Australia as from Amazon HQ or one of their warehouses.> dominant market powerRight, but that is not nearly necessarily the same as either a platform or a monopoly.I would add, if want that “market power” to remain “dominant”, then should have a ‘must have’, not just a ‘nice to have’, a ‘must have’ that will last, that is, not just a fad for teenage girls, and want some darned strong and likely lasting ‘barriers to entry’.For publishing, that’s a special case of ‘content’. There’s a lot of ‘content’ out there, and the ability of many millions of people to ‘produce’ more content at very low cost is just exploding as will the quantity and best quality of the content. Of course, then, the content will ‘fracture’ or ‘specialize’ and not be just ‘one size fits’ as many people as possible, and that specialization will make discovery, recommendation, … more important, really essential, really a ‘cat bird seat’ over all of the explosion of content. Or, a content producer has to get their content in front of their target audience, and currently this task is nearly impossible for nearly all the producers of nearly all the content, even really good content for specialized audiences. A solution is needed. Working on it.

Yoav Lorch
Jul 14, 2014

Fred – I hope very much you are able to see this comment.Total Boox, the company I founded and run, introduces a disruptive model for ebook distribution and consumption. We turn the industry from ‘purchase centric’ to ‘reading centric’. That is: books are needed for the generation of reading. This is their sole purpose. The emphasis on ‘purchasing’ is a limitation of the printed book erroneously carried into the digital age. On our ‘reading centric’ platform people can download any number of books to their devices, read online and offline, and pay only for the portions they actually read. Eg. – if a person reads 5% of a book, from anywhere in the book, they pay 5% of the price, and they own these 5%. Its incremental purchasing of a book according to the personal reading pattern of each user.We have a value proposition to beat Amazon’s. In Amazon you pay if you read and if you don’t read. In our case you only pay if you read and for the portions you read. This conceptual shift also creates valuable additional advantages in distribution, curating, analytics, recommendation and more.We have a strong start, with 25,000 books from world-class publishers, a seasoned team, and great readers.I believe USV will find what we do very interesting, and I’d much appreciate a [email protected].S. – if anyone knows Fred, PLS pass this remark on to him. Thanks.

William Mougayar
Jul 14, 2014

that’s an interesting monetization model. how do you choose the books that are in your inventory?

Yoav Lorch
Jul 14, 2014

We are a platform, and we offer it to publishers, and add their books to the system. We have a very wide variety of books, from academic, computers, business to how-to, hand work, literary fiction, romance and poetry. We try to accommodate all books.

fredwilson
Jul 14, 2014

hi Yoav. we are investors in Wattpad and i like their model even better. reading is free.

Yoav Lorch
Jul 14, 2014

True. Free is good. But doesn’t work for all the market. We are now working with US public libraries where reading is free to the patrons, and libraries pay only for what their patrons actually read, which is a far smaller number of what is checked out.We are also developing ‘Free Reading Zones’ in cities, where we create ‘islands’ of free reading, sponsored by private or public entities.

fredwilson
Jul 14, 2014

if a business model develops around free, as Pandora has done in music, maybe it will work for the market

Yoav Lorch
Jul 14, 2014

It is feasible to develop ad support for what people are actually reading. It’s focused and relevant. It is harder to do it in the older model, where you need to pre-purchase a book before actually reading it.

fredwilson
Jul 14, 2014

i totally agree

Yoav Lorch
Jul 14, 2014

Fred – We are currently working in three areas, all of them using external financing to provide the reader with infinite freedom to download any book and read free of charge. All of them have in their core the idea that payment should relate to value received, I.E – reading.We are working with public libraries, where the libraries pay for what the patrons are reading.Building ‘Free Reading Zones’ in cities, and working with airlines, where reading would be free to passengers, on the plane and in the lounge.There are various routes to continue this into the general market.I have read your article about AirBNB a long time ago, and I believe you’ll find our model truly disruptive and the real game-changer of the ebook space.

headlemur
Jul 14, 2014

Amazon is becoming the Department Store of the internet, similar to Sears Robuck and Co, was in the early part of the century, just without the paper catalogs.The publishers war with Amazon is just like Wal Mart’s hammering suppliers for lower and lower pricing.Both which moved in to the neighborhood and destroyed the local small business economies.Etsy is a good example of the craft business going big without the traditional middle men, On the dark side, a client got so much business that she quit after discovering that her hobby was 2 full time jobs.Ebay is the other example for looking for used products such as auto parts and other services used to rebuild maintain and restore things you already own and want to keep.What sets these two apart is that they are self contained entities devoted to their task of helping folks sell stuff. But they are also the largest middlemen in their sphere.We will never achieve true peer to peer as there are still to many assholes online taking advantage.As far as keeping folks honest, not being afraid to speak up.

ShanaC
Jul 14, 2014

I’m not sure how bitcoin keeps everyone in the content game honest. My big concern is that with few very similar background(ed) types in publishing (eg medium, amazon) the types of cultural creation will start to homogenize and become boring. Avant-garde stuff won’t break through because it will have 0 support.Then what

SubstrateUndertow
Jul 14, 2014

My technically naive hope of hopes for BlockChain like structures !For eons we inhabited a social/commercial organizational-reality constrained to operate within the limits imposed by the purely physical world of space/time organizational-relationships.Communications technologies have progressively eroded/stretched/abstracted those physical-world space/time organizational-relationship constraints for the last few centuries.With the emergence of a globally ubiquitous networking fabric that physical-space/time constrained organizational-relationship dam has suddenly now been busted wide open.We now suddenly inhabit a new social/commercial organizational-reality who’s only operational constraints are the limits of human algorithmic/cybernetic imagination as applied to all conceivable manner of soial/commercial orchestration. This suddenly grants us almost limitless access to a near instantaneous world of abstracted organizational-relationships encompassing all people/things/data/processes, be they, local and/or distal.It’s kinda like being 12 years old and having your dad/mom suddenly hand you the keys to the family car an saying “go ahead have at it”. Suddenly we are faced with risk/reward authorities/responsibilities well beyond our experiential event horizon.It is all a giant educated guess from here on out. Educated guess, meaning, we are stuck looking in the rear view mirror, at what we intuitively sense to be scantly relevant framing, while our cybernetic-orchestration car keeps accelerating into that abstracted-relationship fog.Despite that predictive fog it seems reasonable to assume that the venn diagram that encompasses all possible abstracted organizational-relationships is inclusive of the complete set of all old-world physical-space/time organizational-relationships.It also seem safe to assume that the new players emerging on this cybernetically-orchestrated abstract-relationships playing field will try to preserve as many old school strategic survival advantages as possible.In the old purely physical world of space/time organizational-relationships companies preserved their early dominant positions by building out costly/time-consuming infrastructures. Theses could be disrupted by enduring new inputs of time/money/infrastructure.In a networked world where abstracted algorithmic/cybernetic orchestration defines the inherent dynamics at play in all social/commercial organizational-relationships what exactly represents the penny in the currency of disruption power?Sure to some degree the same old-school dynamics of disruptive unbundling can play out but the accelerating power that is the network-effect exponentially favours network service/ecosystem incumbents.Ultimately incumbent service/ecosystem players claim proprietary ownership of the big-data-silos they build using everyone’s else’s collective user-data-objects and exercise proprietary access-control over processing-verbs via their proprietary API controls.So while the sudden emergence of a globally ubiquitous networking fabric may have theoretically grants us almost limitless access to a near instantaneous world of abstracted organizational-relationships encompassing all people/things/data/processes, be they, local and/or distal.That social-evolutionary grand-prize delivered via epic technical-triumph as embodied in the internet’s globally ubiquitous network-effect has been quickly swept way by old school proprietary controls over that global platform at multiple corporate and political levels.I visualize that global network-effect platform as an analogue to the antomic table.Our collective categories of data-objects are the atomic building block and universally open access API processing-verbs act like the recombinant valence rules. Now imagine exercising some proprietary corporate/political control over particular atoms and conjugative valence rules.BlockChain like structures represent a new distributive form of algorithmic/cybernetic social/commercial orchestration by way of permission-less middleman-abstracted-synchronization. BlockChain like structures embody purpose driven open big-data-silos with universally open API access that promise the potential to restore the internet’s potential.Limitless access to a near instantaneous world of abstracted organizational-relationships encompassing all people/things/data/processes, be they, local and/or distalBlockChain like structures act like a collection of public data-objects accompanied by a collection of appropriately public processing-verbs that play the role of a digital Public-Utility.No Left vs Right ideological implications intended !Anyway under network-effect conditions that debate translates into a discussion about the most beneficial tipping point between autonomous-agency and collective-synchronicity.

Alex Moazed
Jul 14, 2014

By the definition of a platform business, it has “winner take all” dynamics. That could also be defined as a “monopoly”, of sorts.A linear business like the publishing industry has no chance, never really did, of competing against a platform business.Throughout the 20th century, we’ve seen how dominant linear businesses, particularly information businesses (read the Master Switch) use the law & government to their benefit, keeping out new entrants. Hopefully, history will not repeat itself and we will let the free & open marketplace compete against the platform juggernauts.In closing, we have been trained to think that monopolies are inherently bad. However, we have always been referencing linear business monopolies. We have yet to appropriately determine if a platform business monopoly deserves a similar connotation…

Gail Gardner
Jul 16, 2014

Monopolies ARE always bad – and the most dangerous of all monopolies is Google followed by Amazon. Amazon is the Walmart of the Internet. See growmap.com/amazon-walmart

Brandon Burns
Jul 14, 2014

I don’t have much of a comment, other than I love this post.

Pawel Turczynowicz
Jul 14, 2014

Monopolies and oligopolies are based on entry barriers. One of barriers emerged as themost important one in new economy – a barrier of access to information.Google has information about everything what was published in the web, every search done and if the user is happy with the results.Facebook – about the list of people X wants to hear from and information they are sharing.Amazon has access to information, that publisher X in ready to sell given title for Y.eBay – that user X is selling Z for Y.Companies built on those barrier and try to protect it somehow, e.g. by adding otherbarriers, like efficient delivery infrastructure, giant computer farms, brandawareness, etc. However in my opinion access to information it the mostimportant one.I think we are approaching braking point, when limitation in access to information willstart to erode.People and companies are more efficient in sharing information and they will not needmiddleman. Information gets easier and easier to store, transform,back-engineer, and so on.Last twenty years was building those barriers, next ten will diminish them.

Mark Essel
Jul 14, 2014

Always be investing in the next Davey, since the last Davey became Goliath. The value is in the change of market control, and the new efficiency? Who benefits (most), and can you short circuit the cycle?Interesting post.

Sean Hull
Jul 14, 2014

The Etsy discussion is interesting…But what if inditex becomes the Amazon of fashion?Inditex for those who aren’t familiar are the makers of Zara & some other brands. They are somewhat derided in the fashion industry. They effectively plant a mole on the runway, who captures these latest fashions. They send those back to corporate and turn them around in stores in a matter of weeks.So as much as the internet can help the “little guy” at Etsy, it can also help the big guy “borrow” those ideas.The steamroller is great for the consumer, but still tough on creators.

Michael Elling
Jul 14, 2014

Monopolies are sustained more often than not because of inefficient regulation far afield. Take access monopolies and the Wintel model of the late 1990s. The latter was only undone by removing access as a bottleneck in the form of wifi offload in the iPhone a decade after mostly unsuccessful efforts by regulators. Arguably these regulatory fixes merely applied additional taxes and inefficiencies to the problem.Likewise today’s video content monopolies (underscored by Adidas’ sponsorship deal with ManU today) are sustained by the linearTV model at the edge; itself a monopoly. In fact all internet platform monopolies can be tied to lack of interconnect or open access at the edge in layers 1-2 and the lack of price signals (market driven balanced settlements) which clear supply and demand both north-south (apps/content to infrastructure across horizontal layers) and east-west (between networks/agents A and B across vertical boundaries).Here’s an analysis of Google’s closed access model and why I believe it sustains their ad (information) monopoly. http://bit.ly/1670oOx Conversely, if we keep open and equal access in the lower layers at or near the edge, we can be fairly assured with constantly changing marginal supply and demand that the power and scope of platform monopolies will be mitigated by natural forces. That said, some regulatory oversight and direction might be useful in layers 3-7 to avoid significant abuse.On the eve of rapidly developing 4K VoD, 2-way HD video collaboration, seamless mobile BB, and IoT opportunities it is finally time to address these informational policy issues once and for all.

Juan L
Jul 14, 2014

Monopolies have been in many industries over time. And for the same reasons that we raise our hands now, have been disrupted by those who see not a threat but an opportunity. Again, the role of the regulator is critical to maintain balance and prevent market failures.

DJL
Jul 14, 2014

This is right on. In our experience, however, Google, is far from a “benign” platform. It’s search monopoly has a more severe effect on e-commerce as anyting Standard Oil could have ever done.Imagine that there is only ONE mall in the english-speaking world (Google), and that if you are not in one of the coveted spaces (Page 1 results) you are essentially invisible to the shopping world. While Google’s PPC system and endless girations of natural search has created tremendous wealth for Google, it has essentially priced many businesses out of the internet market. (Imagine you had to pay $25 for each person to walk by and peek at your store – and they might not even come in?) While this doesn’t apply to some of the other platforms mentioned, once a platform is a monopoly, there can be a direct conflict between maximizing revenue (shareholder value) and “doing no evil.”

fredwilson
Jul 14, 2014

true

paramendra
Jul 14, 2014

Diamond cuts diamond.

SpringfieldMH
Jul 14, 2014

Sigh. Saying it or worrying about it doesn’t make it so. All it does is identify a possibility. Which authors, among others, are already reacting to, many diversifying to multiple e-store platforms (iBooks, Nook, Kobo, ….) and a significant number investigating alternatives (direct sales, ebooks as apps, e-sales platforms that move from one cloud service to another as needed while retaining the same URLs, email addresses, etc…..).Internet leads to dominant monopolies? Maybe, maybe not. I used the Yahoo search engine religiously, until the day I gave Google a try. Now I’m Google all the way. But the day is coming when I’ll try something else, that proves superior, and I’ll drop Google in a split second.Ditto for Amazon. And Amazon knows it.Anyone remember CompuServe, AOL, mySpace, …..? People are starting to leave Facebook…Who will keep Amazon honest? Every bright wanna be entrepeneur, who studies Amazon. Every author or other supplier who uses them, on a non-exclusive basis, while simultaneously covering their bets and working other scenarios. And, at least for now, Amazon itself.What will we see in a few years? Could be Amazon astride the Earth, Amazon and several significant competitors, Amazon faded, Amazon gone…

fredwilson
Jul 14, 2014

you have great points to makemy one suggestion is don’t start with “sigh”it just takes the discussion to a negative place where it doesn’t need to be

Thomas Petersen
Jul 15, 2014

Thats not a very useful way of looking at things. You could say the same about nation states. They have also come and gone it just takes longer.For those who are affected by the monopolies it’s very real and it doesn’t matter whether thats for 5 or 20 years. What really matters is that platform-monopolies exist and they create more or less the same situation as a governmental monopoly do.I.e. for a given situation you have no way of competing against them. Thats what technology do, it scales and in many cases winner takes all.

SpringfieldMH
Jul 15, 2014

Before I worry about “useful”, I worry about trying to see the world as it actually is and may become, rather than what I prefer or hope for. Then, I start thinking about what to try to do in and about that world. So, beg to differ, it is a useful way of looking at things, at least for me. Your mileage may vary.

Thomas Petersen
Jul 15, 2014

Well that might be how the world looks like from your perspective but it certainly isn’t from mine.From my perspective this is a real thing, something we have to deal with not something one can just ignore because it doesn’t fit into how I would like to world to be.

James O'Connor
Jul 14, 2014

I think early competition is important with regards to innovation. But I also think there comes a certain point where market dominance has it’s advantages, especially in the sense of ecosystem collaboration, sharing, and unity. There have been competitors to Amazon (mainly Apple), but Amazon has the best platform in my opinion. Accessible on any device and the largest repository of ebooks for great prices.There are other ways to innovate – building new technologies on top of the platform (why it’s important for the platforms to have dev portals/apis) or creating ecosystems like Wattpad. But I think once there’s dominance the only thing that other major players can do is fragment certain parts of the market and cause more expense to the end consumer.

AndyUpdegrove
Jul 14, 2014

Fred, it’s been awhile (back during your Euclid Partner days), so I hope all is well.I wrote recently about the power of network effects and what the world would look like with Amazon in a monopoly position. You might find it interesting, and can find that post here: http://updegrove.wordpress…. Teaser alert: the second part of the title is “Be very afraid.”

OurielOhayon
Jul 14, 2014

same logic can apply to app store? and OS platforms? who keeps them fair and honest?

Siraj
Jul 15, 2014

Fred you are so cool. I have faith in the power of the blockchain to overcome centralization across all industries. Keep fighting the good fight.

Roger McNamee
Jul 15, 2014

Fred – Thank you for sharing this. It will be interesting to see how things play out for the next generation of bottom’s up players. I will be cheering for your companies!!!!

aboer
Jul 15, 2014

I used to think network effects were inherently pretty powerful, (ie. each new person adds value to the network, because more buyers means more sellers.) But some network effect enabled middlemen have proven extremely difficult to disrupt (eBay, Amazon, ComScore) and others have proven terribly fragile: Indeed disrupts Monster, Facebook disrupts MySpace. I think Tinder is poised to disrupt the entire dating industry in just a couple of years — they might be able to sew it up the way that match.com and eharmony never could; So why? Is it a sector thing? What makes dating fragile and E-commerce solid? Is it about trust? Or is it just execution?

Christopher
Jul 15, 2014

Excellent post. As it happens I’ve just been trying to find a site to gift an mp3. You’d have thought this would be a common thing to want yo do and therefore a heavily competed space. The only results on the first four pages of Google are Amazon and a few dodgy sounding sites. It’s true that some if these big platforms are sucking or blowing (?) competition out of some markets and on days like today that’s really frustrating (Amazon Wong let me gift what I want to in the UK…)

Dumitru Sandru
Jul 15, 2014

“When every author has left the publishing house system and has gone direct with Amazon, what does that world look like?” Different and better.

bobwyman
Jul 15, 2014

The Internet doesn’t remove the need for a middleman, rather it removes the need for more than one middleman. You may call Amazon and Etsy “platforms,” but a large part of their function is that of the middleman. As middlemen, they provide the context within which producers and consumers meet to match supply with demand.Back when Amazon was first announced, it wasn’t the first online bookstore. I remember well that on reading the announcement, I asked myself: “Why do we need more than one online bookseller offering to sell *all* books?” The answer was, of course: “We don’t.” The same answer holds for questions like “Why do we need more than one search engine, or social network, or whatever…” Certainly, it would be “wise” to have more than one in order to ensure that benefits of competition, but if an incumbent monopoly is currently doing a good job, it is hard to justify investing in the day when they begin to slack off. (Although it is certain that that day will come.)The reality is that one of the Internet’s greatest unintended consequences is that it has vastly increased the number of opportunities to create large scale, sustainable, geography-independent monopolies while reducing dramatically the opportunity to create the smaller, geographically defined monopolies that are typical in the brick-and-mortar world.

Gail Gardner
Jul 16, 2014

Just as Microsoft competed unfairly in the early OS, application, and browser days, Amazon competes unfairly now. See growmap.com/amazon-walmart for some examples of how they shut out competition and impose exclusivity on writers.

Kenneth Buchanan
Jul 15, 2014

In this case, isn’t a network just a middleman on steroids (X100)?From general store – to Walmart – to Amazon – to the Star Trek computer that provides products and services without the brands, the middleman has just continued to increase in power and potency. Of course, this has been through the conquests of the other middlemen (or value chain members)! (Highlander – There Can Only Be One!)Like Nick Nolte as The Hulk’s Dad… He grew stronger as he absorbed more until he became one with nature. (Yeah… You could also say that the Hulk is Amazon – at least in that movie… I digress).The new (internet) general store owner has just adopted the flea market (network) model that charges tenant (businesses) a fee to setup shop in his store along with other convenience fees. Is this giant flea market owner now truly a monopoly because a greater number of businesses want to setup shop in his store?I definitely understand what you’re saying, but I just don’t think it’s as clear cut since both the sellers and buyers initially get better deals and may eventually become victims of their own profit seeking ambitions. (Eventually, unchecked, this free sample model can wield monopolistic powers once both parties have become addicted to their diets of increased revenues – take heed Zandri).Not sure what all of the hubbub is about though. Amazon’s business strategy is just being played on a bigger field. They’ll keep demolishing competitors up and down the chain and moving into new/larger markets. Hopefully they’ll expand into Russia so we can get Jack Back! 🙂

Ultraberg
Jul 15, 2014

So close to a great post! Until you mentioned Bitcoin, which is the definition of an ungoverned marketplace. The main regulator is named after Magic The Gathering and sales orders can be paused by the sellers to put their own sales through first. A marketplace without ready exchange into tender is pointless.https://twitter.com/DonsLaw…

Tom Marsh
Jul 16, 2014

Good post Fred as usual thanks. I would add LinkedIn to your list, particularly recent decisions to limit their API hurt a bunch of nice social CRM apps like Nimble in favor of Salesforce and MS CRM. As platform giants become bigger, they generally move away from programs supporting smaller members of the ecosystem either to become more efficient. larger deals “move the needle”, or in some cases are pressured by big partners to kill some of their competition. This also introduces other issues downstream like “too big to fail” institutions and concentrations of information tempting to criminals and government agencies.I commend you on moving to the next level. The solution to the problems these platforms create is the next wave with better models. For this we will need very strong entrepreneurs and investors willing to take a shot and not fold when the platform offers a big “buy it and bury it” exit.

Gail Gardner
Jul 16, 2014

Google is anything but a “benign monopoly”. Tell that to the small businesses that made $1 million plus for 10-12 years only to have Google decide to drop 58-70% of their traffic and income overnight. Monopolies are ALWAYS dangerous. Amazon is the Walmart of the Internet. All three of these monopolies endanger small business. They ARE the middlemen who suck the profits away from the talent.We do not need all-powerful monopolistic middle men. When there are few places to sell, the talent has no bargaining power. Ask anyone who tries to sell on Amazon. To get volume the price must be dropped so low there is almost no profit in selling. These are all an example of our race to the bottom. Eventually although products will be as cheap as they can be, very few Americans will have money to buy any of them.

bernardlunn
Jul 17, 2014

Wow, this is so right and important. The only challenge will be from more innovation. I can envisage networks based on Blockchain based decentralised platforms challenging the dominant platforms. The current incumbents and regulators will always be a “day late and a dollar short”.

Aleksandr Blekh
Jul 19, 2014

It’s an interesting post and I thought I’d share some thoughts. If I understood you correctly, your advocate reducing power of Internet-based platform monopolies by diversifying startup ecosystem. That is, by investing in companies that may compete with established extra large and too powerful companies in their respective sectors. However, the problem that I see with this approach is that current VC investment model is focused on helping startups to grow fast and scale big, toward becoming a smaller version of monopolies – exactly the situation that you’re saying you’re trying to disrupt – and then even more monopolistic via M&A events. Attempts to diversify markets by investing in potential competitors to monopolies are further reduced by a statistically rather low rate of startup success. So, while while your approach is valid and generally useful, I doubt that it may radically change the situation in regard to reducing the superpower of monopolies. I think that regulatory measures may become more effective solution to the problem.

Frank MFC
Jul 21, 2014

Nice perspective of the impact on the changing times. A lot of us are too focused within our own world to take time to look at the big(ger) picture. I especially like “We like things that are laughed at. The more they are derided, the more we want to invest.” And “We have invested in Wattpad, which is a bottoms up competitor to Amazon”. I’ve been developing (for way too long) a disruptive solution for a market which I wont mention here; it is a bottom up solution that I expect will be laughed at and thought of as a toy… till now this was a negative in my subconscious, so this article gives me hope… well, enough hope to finish anyway 😉

Dino_llc (@i_am_motorious)
Jul 23, 2014

There is also what is known as a LEGAL MONOPOLY: a patent, which when combined with painstaking, thorough research, well conceived (i.e. Machiavellian) contrarian strategy, best in class partnerships with blue chip players, combined with both critical mass and momentum, you get the disruptor of incumbents cum disruptor of disruptors, given the sheer scale and flexibility a combined strategy of “virtual” and real world assets (utilizing concepts of Game Theory to maximize both ROI and wealth creation), one has the makings of an unstoppable juggernaut. Such is MOTORIOUS: Instagram.com/dino_llc.